Mallinckrodt commits $47 million to expanded relationship with MBI

Firm secures spot in ultrasound contrast market

A multimillion dollar investment by Mallinckrodt has all but guaranteedthat the next generation of ultrasound contrast media being developedby Molecular Biosystems of San Diego will be commercialized.

On Sept. 7 Mallinckrodt and MBI jointly announced an agreementthat could ultimately pump as much as $47.5 million into MBI.In return, the deal enhances an existing agreement between thetwo companies in several ways. The agreement:

• extends the time that Mallinckrodt will have exclusive salesand distribution rights over MBI's contrast agents Albunex andthe still-experimental FS069;

• establishes the means for Mallinckrodt to expedite the clinicaldevelopment of FS069; and

• increases the number of countries in which Mallinckrodtcan market these products.

"We believe there is a very significant market ultimatelyfor ultrasound contrast agents," said Cole Lannum, directorof investor relations at the Mallinckrodt Group in St. Louis.

The new agreement with MBI, which builds on a relationshipthat extends back to 1988, is the means for tapping that market,said Alex Zisson, market analyst with Hambrecht & Quist inNew York City.

"Essentially, Mallinckrodt is buying into the pipeline,specifically the second-generation contrast agent, FS069,"Zisson said. "In terms of market potential, it is a quantumleap ahead of Albunex."

Albunex sales in North and South America have been disappointing,despite a strong effort by Mallinckrodt to market the product,the world's first commercial ultrasound contrast agent. But Albunexis doing much more than just generating revenue, said Rich Stern,vice president of marketing at MBI.

"It is important to have experience in the marketplace,to understand the expectations of the customer," Stern said."Nobody at this point, except us through Mallinckrodt, hasthat direct feedback."

From MBI's perspective, the timing of the agreement couldn'tbe better. Efforts by the company to cut operating expenses havereduced but not eliminated the company's flow of red ink. Financialresults reported last month show that the company lost $4.5 millionin the first quarter of fiscal 1996 (end-June). With only $21.6million in liquid assets, at that rate of loss the company couldhave run dry in about a year. As a result of the new agreementwith Mallinckrodt, that is no longer a concern.

MBI will immediately receive a cash infusion of $13 milliongenerated by Mallinckrodt's purchase of MBI common stock at $11.62per share. The investment raises the company's stake in MBI to10%. But that investment is only one piece of the pie that hasbeen handed to MBI. Mallinckrodt has also agreed to pay $20 millionover four years to support FS069 clinical trials and product developmentand an additional $14.5 million for further clinical funding andmilestone achievements.

In return for the capital, Mallinckrodt's sales and distributionagreement covering North and Latin America for Albunex and FS069will be extended from October 1999 until at least July 2003 orthree years after the Food and Drug Administration approves theproduct for visualizing blood perfusing the myocardium. As partof the agreement, Mallinckrodt will assist MBI in the clinicaldevelopment of FS069.

Mallinckrodt also has gained the right to sell and distributeAlbunex and FS069 in countries not already covered by existingagreements entered into by MBI. Those include agreements withShionogi & Co. for Japan, Taiwan and South Korea and Nycomedfor Europe, the former Soviet Union, Africa and India. The primarymarkets available to Mallinckrodt are New Zealand, Australia andparts of Asia, Lannum said.